United's loss may be gain for rivals / Asia routes coveted by other carriers

David Leonhardt, Edward Wong, New York Times

Published 4:00 am, Thursday, December 5, 2002

Executives at other airlines savored the federal government's rejection of United Airlines' request for a loan guarantee after some of them had lobbied intensely against any bailout.

"At the end of the day, it's good for our industry, and it's good for the American people," Gordon Bethune, Continental Airlines' chief executive, said Wednesday night.

United's competitors are likely to steal some of the airline's passengers as it struggles to restore its finances and suffers through the distraction and publicity of a probable bankruptcy filing, industry analysts said. American Airlines, United's main rival in Chicago and one of its chief competitors in California, stands to benefit the most, analysts said.

But the biggest prize would be United's legal rights to fly overseas routes,

which a judge could order the company to sell if it files for bankruptcy protection. The jewel in United's system is its extensive schedule of flights across the Pacific to Asia, much of it acquired in 1985 when United bought the rights to fly those routes from a struggling Pan American World Airways.

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Over the last week, United's rivals sent their own financial analyses of the airline's condition to the Air Transportation Stabilization Board, the federal body created after the Sept. 11 attacks to help the industry. The executives argued that United's business was broken and that the $1.8 billion in loan guarantees it sought would end up being wasted, ultimately to be paid by taxpayers.

Douglas Steenland, president of Northwest Airlines, praised the board for doing "an incredible amount of work" and called its decision "the right one."

In the coming months, the loan rejection and even a bankruptcy filing are likely to lead to some cutbacks in service at United, but travelers should expect the airline to maintain most of its routes, travel agents said. US Airways is already in bankruptcy protection, and Continental emerged from earlier bankruptcies to become one of the industry's stronger carriers, the agents noted.

Industry executives said they had expected the government board to reject United's request and were surprised only by its timing. Others noted that the letter from the board to Frederic Brace, United's chief financial officer, was both detailed and blunt in its criticism of the company's business plan.

United executives, while vowing to do everything they can to avoid bankruptcy, say that their rivals opposed the loan guarantee primarily so that they can benefit from the company's troubles.

Aside from incremental gains in market share, other airlines might most benefit from United's woes by buying some of its international routes. Airlines approved by safety regulators have free rein to fly within the United States, except at a few crowded airports, but international flights are restricted by trade agreements.

United has a relatively large number of flights to Asia and Latin America and a good number of flights to Europe as well.

Both American and Delta have tried in recent years to win new rights to fly to Asia and would probably be among the most eager bidders if United is forced to sell its Pacific route system.